- The Central Bank of Bahamas (CBOB) made history by issuing a digital currency that can be used in domestic wholesale and retail transactions
- China successfully airdropped $1.5 million worth of DCEF to its first test location in Shenzhen, posting another major milestone in the development of state-backed digital currency
While more countries are warming to the idea of relying less on printed cash and putting faith in a more flexible payment system, the race among nations to launch central bank digital currency (CBDC) has an obvious winner. Despite having a considerable edge over its competitors, China, the indisputable leader in the race, was overtaken by the Bahamas — an archipelago consisting of 700 islands scattered across the Caribbean Sea.
The Central Bank of Bahamas made history by becoming the first central bank to launch a digital currency nationwide. The digital version of the Bahamian dollar, dubbed the “Sand Dollar”, was under development for years and the timing of its release couldn’t have been better. Project Sand Dollar is an initiative to bridge the physical distance among the islands by upgrading the commonwealth’s financial market infrastructure to accommodate the digital Bahamian dollar. Previous Payment System Modernization Initiatives (PMSI) include the creation of a real-time gross settlement (RTGS) system in 2004, and the Bahamas Automated Clearing House (BACH) in 2010. Both initiatives play an important role in enhancing the efficiency of domestic electronic payments, and laying solid groundwork for the launch of the “Sand Dollar”. The following diagram illustrates the Sand Dollar Ecosystem as well as shareholders involved.
Project Sand Dollar envisions further acceleration in electronic transactions and a decrease in physical cash reliance. The project was initially tested in the Exuma district, leveraging the island’s high cell phone adoption rate, and the general open attitude towards digital services. The successful pilot rollout was soon expanded nationwide, and left its mark in the history of digital asset development. After the domestic adoption, the “Sand Dollar” is looking to expand its scope to incorporate more countries and become interoperable with other global currencies.
On a side note, some species of sand dollars (a type of sea urchin) are also known as “sea biscuits”. Coincidentally, Seabiscuit is also the name of a thoroughbred racehorse that beat the 1937 Triple-Crown winner on Nov. 1, 1938. The victory of an underdog became a beacon of hope to many Americans during the Great Depression. One can’t help but wonder, if the digital “Seabiscuit” could become a symbol of hope to Bahamians as they persevere through the confluence of natural disasters, such as Hurricane Dorian, and the pandemic-induced recession.
Since its inception, the narrative behind adopting CBDC is often intertwined with the inevitable implementation through blockchain technology. However, as many central banks are knee-deep in either the development or the testing phase, that rhetoric seems to be waning. Major players in the league are gradually departing from mobilizing the nascent technology into something more practical. If the successful launch of the “Sand Dollar” isn’t enough to convince you, China’s Digital Currency Electronic Payment (DCEP), too, is moving away from the blockchain narrative, despite the state’s persistent effort in heralding blockchain as one of its new technology infrastructure.
China’s DCEP made great strides in the past weeks, in the form of a $1.5-million giveaway, given to 50,000 residents in Shenzhen, the first test location of the state-backed digital currency. 200 digital yuan were distributed in digital “red envelopes”, mirroring the country’s traditional way of gifting cash. The online wallet is accessible via a mobile app. With a quick scan, payments can be made and accepted in most retail stores in downtown Shenzhen, to purchase a variety of goods and services ranging from designer handbags to hawker food.
In an effort to demystify the new initiative, the state-run press agency, Xinhua, dispelled common myths around DCEP, claiming that it’s not equivalent to blockchain or cryptocurrency. The statement is a direct contradiction to the prevailing narrative that the Central Bank of China is extensively employing blockchain technology to establish a new payment system. Xinhua stressed that the nascent technology, played some part in implementing the digital yuan, is not applicable to the retail use cases.
Many participants’ feedback to Xinhua highlighted that the DCEP wallet user experience is not entirely different from those of Alipay and WeChat Pay, with the slight improvement of removing the hassle of linking to one’s existing bank account(s). Xinhua also clarifies that the development of DCEP is not designed to replace the existing mobile payment system, but rather as a complementary service to better address the needs of the world’s largest online payment market. In some ways, the DCEP can be interpreted as a small-scale digital stimulus package, which aims to reinforce its legitimacy as the only official digital currency in China that has immense potential to assert its dominance in the global payment system. However, there have been rising concerns about the proliferation of digital yuan, which operates outside the existing global financial structure and threatens to challenge the hegemony of the U.S. dollar.
Meanwhile, a joint working group was formed by a handful of central banks including Canada, England, Japan, along with the Bank for International Settlements, to hammer out consensus to avoid barriers for transferring electronic sovereign currencies. The Central Bank of China, however, was not involved in the process.
With the pandemic pushing the bulk of essential services online, many other countries are toying with the notion of state-backed digital currencies. In the next article, we will look at the development of digital currencies around the world.